ACCOUNTING FOR INVENTORY

EXAMPLE 1

JM Ltd had the following transactions during November.

Number of units Cost per unit

Opening balance 1 November 20 4.00
Receipt 8 November 140 4.40
Issues 12 November 80
Receipt 18 November 100 4.60
Issues 26 November 140

Calculate the closing inventory value at the end of November using FIFO, LIFO and
WEIGHTED AVERAGE.

EXAMPLE 2

Janis has demand for 40,000 desks per annum and the purchase price of each desk is $25. There
are ordering costs of $20 for each order placed. Inventory holding costs amount to 10% per
annum of inventory value.

Calculate the inventory costs per annum for the following order quantities and plot them
on a graph:

a. 500 units b. 750 units c. 1000 units d. 1250 units

EXAMPLE 3

A Co. has demand for 50,000 per annum. They produce their own units at a cost of $30 per unit
and are capable of producing at a rate of 500,000 units per annum. Machine set up costs are $200
for each batch. Inventory holding costs are 10% per annum of inventory value.

Calculate the Economic Batch Quantity and the costs involved per annum for that
quantity.